Subject: The temporary
rule for the Small Scale Energy Loan program (SELP) clarifies eligible uses of loan
proceeds. In December 2012, the Oregon Department of Energy filed permanent rules
amending OAR 330-110-0040(9) incorrectly. The Oregon Department of Energy believes
a temporary rule is justified because without a temporary rule, a borrower could
attempt to obtain a SELP loan for a single item, rather than a group of items that
makeup a SELP project. The consequences of the rule as written, creates confusion
about the allowable uses of bond funds as regulated by federal law. By adopting
this temporary rule, clarifying eligible uses of loan proceeds, the Oregon Department
of Energy will be able mitigate confusion and align with federal law.

Rules Coordinator: Kathy Stuttaford—(503) 373-2127

330-110-0040

Loan Limits, Security, and Conditions

(1) The Director may limit the term and
amount of any loan or loan approval. The Director may deny any application or set
such terms and conditions in regard to any loan or loan approval as needed to assure
a sound loan or to protect the fiscal integrity of the program.

(2) A loan secured by real property
must be secured by a first lien on such real property in favor of the State of Oregon
and must not exceed eighty percent of the security value of such real property.
The real property that is collateral for the loan must have been appraised by a
licensed appraiser, county assessor or Department appraiser, at the discretion of
the director, no longer than six months prior to the date of the loan approval.
The Department will consider junior liens only on a case-by-case basis.

(3) If a loan to a municipal
corporation will be repaid from project income, the security package for the loan
may include the project income.

(4) A loan to a state agency,
an eligible federal agency or a public corporation may be secured by project income,
in addition to the facility or equipment that make up the project, by a lease purchase
contract or by other income or security in accordance with ORS 470.170. State agencies,
eligible federal agencies or public corporation borrowers must provide resolutions
or other official action of borrower’s governing body approving the loan and
the other matters contemplated by the loan documents, and of all other documents
evidencing any other necessary action by Applicant’s governing body.

(5) The Department generally
requires an unconditional and absolute guaranty of the owners or the principal shareholder
of the borrower or that of a person having sufficient resources to satisfy the borrower’s
repayment obligation for the loan should the borrower default.

(6) The Director may consider
savings in operation and maintenance costs in estimating the annual project cost
savings. The Director may also, when calculating the estimated savings in fuel costs,
consider reasonably expected increases in the cost of fuel.

(7) A project that primarily
produces energy for sale must have:

(a) Secure sources of supply
and contracts for the sale of output;

(b) Projected income, net of
operating expenses and maintenance costs, of at least 125 percent of annual debt
service for each year of the loan; and

(c) An identified secondary
source of repayment apart from the project income.

(8) Unless the Director finds
that mitigating financial factors warrant otherwise, a loan to a business for a
project that saves or produces energy for use on site, is an alternative fuel project
or is an energy-saving recycling project may be made only:

(a) Upon an identifiable and
reasonable primary repayment source and the pledge of adequate security;

(b) For less than 80 percent
of the security value of real property on which the Department has a first lien,
the Department will consider junior liens on a case-by-case basis;

(c) To a business that has made
a profit after taxes for at least the two years immediately preceding the loan application;
and

(d) To a business that has a
ratio of current assets to current liabilities of at least 1.75 to 1 and a ratio
of total debt to owner’s equity of no more than 2 to 1. The Director may exempt
a business from the requirements of OAR 330-110-0040 if it demonstrates to the satisfaction
of the Director that sound businesses of similar type and size do not normally meet
these standards.

(9) Loan proceeds must be used
for the costs of a small scale local energy project, with the following limitations:

(a) Cost of acquisition of the
project site must not exceed ten percent of the loan amount.

(b) Capital for start-up must
not exceed three percent of the loan amount.

(c) Reserves must not exceed
fifteen percent of the loan amount.

(10) The loan proceeds of an
alternative fuel project may only be used for the following purposes:

(a) Incremental costs of the
project that are beyond the reasonable estimated minimum costs to construct or install
a similar project without alternative fuel features. Incremental costs do not include
the cost of equipment or devices that, in standard industry practice, are used to
dispense gasoline or, in the case of vehicles, equipment or devices that use gasoline
and that also allow use of an alternative fuel without modification. Alternative
fueling stations with underground fuel tanks do not qualify for funding as alternative
fuel projects.

(b) In the case of vehicles,
products and installation of such products approved by and meeting or exceeding
the emission standards of the Department of Environmental Quality.

(11) No more than fifty percent
of loan proceeds may be used to refinance existing debt authorized by ORS 470.050(27)(g)
unless such debt is with the Department. The refinancing must result in a significant
increase in the security value of the loan security.

Notes1.) This online version of the OREGON BULLETIN is provided for convenience of reference and enhanced access. The official, record copy of this publication is contained in the original Administrative Orders and Rulemaking Notices filed with the Secretary of State, Archives Division. Discrepancies, if any, are satisfied in favor of the original versions. Use the OAR Revision Cumulative Index found in the Oregon Bulletin to access a numerical list of rulemaking actions after November 15, 2012.